ALTA Risk Management Flashcards

What is the role of an ALTA Best Practices assessment in risk management?

Answer: It evaluates whether a title company's operations meet established standards for financial controls, data security, and consumer protection

An ALTA Best Practices assessment evaluates a title company's operational procedures against ALTA's seven pillars to identify risk gaps and demonstrate compliance to lender partners.

Which ALTA Best Practices pillar addresses the proper receipt, management, and disbursement of settlement funds?

Answer: Pillar 2 – Escrow Trust Accounting

Pillar 2 of ALTA Best Practices requires title companies to maintain proper escrow accounting controls, including reconciliation of trust accounts, to protect settlement funds.

What is 'forgery' risk in the context of title insurance?

Answer: Risk that a document in the chain of title, such as a deed, was signed by someone falsely claiming to be the owner

Forgery risk arises when a fraudulent party creates or signs a document — such as a deed — in someone else's name, potentially clouding the chain of title.

What does errors and omissions (E&O) insurance cover for a title company?

Answer: Claims arising from professional mistakes or negligence in performing title services

E&O insurance covers a title company against claims resulting from professional errors or omissions in conducting title searches, issuing commitments, or other title services.

Why is vendor management important under ALTA Best Practices?

Answer: Because title companies are responsible for ensuring their vendors also handle consumer data and closing functions in compliance with applicable standards

Title companies must vet and monitor vendors who handle consumer data or settlement services to ensure those vendors comply with privacy and operational standards, as the title company retains responsibility.

What is a 'known risk' underwriting exclusion in a title policy?

Answer: A condition or defect that was known or disclosed to the insured before the policy issued, which the underwriter excludes from coverage

Known risk exclusions prevent a title policy from covering defects or claims the insured was aware of before the policy was issued, as insuring against known problems would be against public policy.